FDIC Insurance Fund to Turn Negative in 1 1/2 HRS

September 29, 2009 · Posted in General Economics · Comment

According to a recent FDIC memo, its Deposit Insurance Fund (DIF) will be negative as of September 30th 2009:

Fund Balance/Reserve Ratio Projections

Pursuant to these requirements, staff estimates that both the Fund balance and the reserve ratio as of September 30, 2009, will be negative. This reflects, in part, an increase in provisioning for anticipated failures. In contrast, cash and marketable securities available to resolve failed institutions remain positive.

Staff has also projected the Fund balance and reserve ratio for each quarter over the next several years using the most recently available information on expected failures and loss rates and statistical analyses of trends in CAMELS downgrades, failure rates and loss rates. Staff projects that, over the period 2009 through 2013, the Fund could incur approximately $100 billion in failure costs. Staff projects that most of these costs will occur in 2009 and 2010. Approximately $25 billion of the $100 billion amount has already been incurred in failure costs so far in 2009. Staff projects that most of these costs will occur in 2009 and 2010.

(…and of course the $100 billion in anticipated failure cost will at some point also turn out to be too low and will be adjusted upwards again.)

This is explosive material. This whole thing has been sizzling hot since August 14th. Let’s see how much longer they can patch it up until it blows up in our faces …

Tags: dif, fdic

Home Prices – July 2009

September 29, 2009 · Posted in General Economics · 2 Comments

Home prices nationwide continue to bounce back and have now risen for the 3rd month straight.

Top 3 monthly increases:

1. Minneapolis, MN: 4.58%
2. San Francisco, CA: 3.34%
3. Chicago, IL: 2.66%

Noteworthy: The only city there prices continue to decline is Las Vegas where home prices have dropped by 1.15% from last month.

Tags: case shiller, home prices, july 2009

Germany Votes for Change – Free Democratic Party Posts Best Results Ever

September 27, 2009 · Posted in Global Economics, Politics · Comment

The elections in Germany are over and the political landscape is changing drastically. Personally, I am excited about the results. After 11 years of absence the Free Democratic Party (FDP) is returning to government with 14.6% of the votes. Their main agenda in a nutshell:

more net income from gross income for more growth, more jobs and more prosperity
more freedom through stronger civil rights
more education for better prospects for the future
more competition and lesser ideology in environmental policy for more energy
more confidence built through international dialogue

Back in May I wrote:

A strong FDP (Free Democratic Party) in the next German coalition would be the best thing that could happen to Germany. No change will emanate from SPD or CDU, just as in the US no change can emerge from Democrats or Republicans in their current state.

The FDP will have to govern in a coalition with the CDU/CSU, the conservative party. Economically, CDU and FDP have more overlaps than on civil policies. The FDP will attempt a reversal of the excessive intrusions into the privacy of Germans commited by SPD and CDU governments over the past years. It will be interesting to see whether the FDP will be able to push through their point of abolishing compulsory conscription into the German military.

The most important push will be on tax policy. The FDP aims at drastic tax cuts, with tax brackets at 10%, 25%, and 35%. How close the conservatives will be willing to move to these demands remains to be seen.

There is a danger that looms for the freedom movement in Europe: If no drastic and real changes are made to the status quo, Germany’s economy will continue to ail and unemployment will not improve. People will then falsely conclude that a pro-freedom party’s program has failed, that more freedom does not bring more prosperity, and once again cast the majority of votes for the big government parties, be they socialist or conservative.

Tags: fdp, german economic policy, german elections, germany

Audit the Fed Hearing Tomorrow! Your help needed now!

September 24, 2009 · Posted in Politics · Comment

From John Tate, President of Campaign for Liberty:

September 24, 2009

Dear Friend of Liberty,

This Friday, the House Financial Services Committee will meet at 9 am eastern to hold a hearing on Congressman Paul’s Audit the Fed bill, HR 1207.

We have come a long way in this historic effort, but your action is needed now more than ever.

Click here to find the names of the representatives on the Financial Services Committee and to get their contact information.  Even if they do not represent your district, be sure to call as many of them as you can anyway, as their work on the Committee greatly impacts every one of us.

Urge them to pass the Audit the Fed bill to the floor on its own merits and not as part of an overall package that would strengthen the Federal Reserve and further damage our economy.  Transparency in our monetary system is too important to be smothered in yet another Washington regulatory bill.

If your representative is not on the Committee, please contact him as well and tell him you want to know what the Fed has done with your money.  Demand a standalone vote on Audit the Fed and that he cosponsor HR 1207 if he has not yet done so.

The hearing will be streamed live on the Committee’s website.

This hearing would not have taken place if not for all of your hard work in calling, writing, faxing, and petitioning Congress to support HR 1207 and S 604, its Senate companion.

It’s incredible to see all the support we have amassed in this historic effort, but if we want to achieve a complete victory, we must now push harder than ever and turn the heat up!

Your call could have a critical impact on your representative’s decision. Contact them immediately!

In Liberty,

John Tate
President

Tags: audit the fed, federal reserve bank

Census Worker Hanged in Kentucky

September 24, 2009 · Posted in Politics · Comment

Anti government sentiment is growing, to the point where it escalates in sheer and utter cruelties, the AP reports, Slain census worker was warned about area:

When Bill Sparkman told retired trooper Gilbert Acciardo that he was going door-to-door collecting census data in rural Kentucky, the former cop drew on years of experience for a warning: “Be careful.”

The 51-year-old Sparkman was found this month hanged from a tree near a Kentucky cemetery with the word “fed” scrawled on his chest, a law enforcement official said Wednesday, and the FBI is investigating whether he was a victim of anti-government sentiment.

“Even though he was with the Census Bureau, sometimes people can view someone with any government agency as ‘the government.’ I just was afraid that he might meet the wrong character along the way up there,” said Acciardo, who directs an after-school program at an elementary school where Sparkman was a frequent substitute teacher.

The Census Bureau has suspended door-to-door interviews in rural Clay County, where the body was found, until the investigation is complete, an official said.

The law enforcement official, who was not authorized to discuss the case and requested anonymity, did not say what type of instrument was used to write the word on the chest of Sparkman, who was supplementing his income doing Census field work. He was found Sept. 12 in a remote patch of Daniel Boone National Forest and an autopsy report is pending.

Manchester, the main hub of the southeastern Kentucky county, is an exit off the highway, with a Walmart, a few hotels, chain restaurants and a couple gas stations. The drive away from town and toward the area where Sparkman’s body was found goes through sparsely populated forest with no streetlights, on winding roads that run up and down steep hills.

Dangerous terrain
Manchester Police Chief Jeff Culver, whose agency is not part of the investigation because the death was outside city limits, said the area where Sparkman was found has a history of problems with prescription drug and methamphetamine trading.

“That part of the county, it has its ups and downs. We’ll get a lot of complaints of drug activity. They’ll whittle away, then flourish back up,” Culver said. He said officers last month rounded up 40 drug suspects, mostly dealers, and made several more arrests in subsequent days.

FBI spokesman David Beyer said the bureau is assisting state police and declined to discuss any details of the crime scene. Agents are trying to determine if foul play was involved and whether it had anything to do with Sparkman’s job as Census worker, Beyer said. Attacking a federal worker during or because of his federal job is a federal crime.

Lucindia Scurry-Johnson, assistant director of the Census Bureau’s southern office in Charlotte, N.C., said law enforcement officers have told the agency the matter is “an apparent homicide” but nothing else.

Census employees were told Sparkman’s truck was found nearby, and a computer he was using for work was inside, she said.

‘Such an innocent person’
Sparkman’s mother, Henrie Sparkman of Inverness, Fla., told The Associated Press her son was an Eagle scout who moved to Kentucky to direct the local Boy Scouts of America. He later became a substitute teacher in Laurel County, adjacent to the county where his body was found.

She said investigators have given her few details about her son’s death. They did tell her his body was decomposed and haven’t yet released it for burial.

“I was told it would be better for him to be cremated,” she said.

Acciardo said he became suspicious and went to police when Sparkman didn’t show up for work at the after-school program in Laurel County for two days. Authorities immediately investigated, he said.

“He was such an innocent person,” Acciardo said. “I hate to say that he was naive, but he saw the world as all good, and there’s a lot of bad in the world.”

‘Saddened’
Sparkman had worked for the Census since 2003 in five counties in the surrounding area, conducting interviews once or twice a month. Much of his recent work had been in Clay County, officials said.

The Census Bureau has yet to begin door-to-door canvassing for the 2010 head count, but thousands of field workers are doing smaller surveys on various demographic topics on behalf of federal agencies. Next year, the Census Bureau will dispatch up to 1.2 million temporary employees to locate hard-to-find residents.

Mary Hibbard, a teacher in Manchester, said she recognized Sparkman on the news as the census worker who visited her house this summer for about 10 minutes. Hibbard said he asked some basic questions including the size of her house, how many rooms it had and how much she paid monthly for electricity.

“I know he has a Christian background,” she said. “You come to my house, we’re going to talk religion.”

Hibbard said she thinks most people in the area were shocked by the death.

“I think the negative publicity of it is a stigma on our county. It makes people think less of us even though this is an isolated incident.”

The Census Bureau is overseen by the Commerce Department.

‘A shining example’
“We are deeply saddened by the loss of our co-worker,” Commerce Secretary Gary Locke said in a statement.

Locke called him “a shining example of the hardworking men and women employed by the Census Bureau.”

Kelsee Brown, a waitress at Huddle House, a 24-hour chain restaurant in Manchester, when asked about the death, said she thinks the government sometimes has the wrong priorities.

“Sometimes I think the government should stick their nose out of people’s business and stick their nose in their business at the same time. They care too much about the wrong things,” she said.

Appalachia scholar Roy Silver, a New York City native now living in Harlan County, Ky., said he doesn’t sense an outpouring of anti-government sentiment in the region as has been exhibited in town hall meetings in other parts of the country.

“I don’t think distrust of government is any more or less here than anywhere else in the country,” said Silver, a sociology professor at Southeast Community College.

The most deadly attack on federal workers came in 1995 when the federal building in Oklahoma City was devastated by a truck bomb, killing 168 and injuring more than 680. Timothy McVeigh, who was executed for the bombing, carried literature by ultra-right-wing, anti-government authors.

Sparkman’s mother is simply waiting for answers.

“I have my own ideas, but I can’t say them out loud. Not at this point,” she said. “Right now, what I’m doing, I’m just waiting on the FBI to come to some conclusion.”

I had been wondering when we would start seeing such cases. It resembles the events when things escalate in Atlas Shruggedwhere people start killing tax collectors in defiance of government policies.

I don’t think this will be the last case of this kind. This incident in itself might actually incite other, similar minded, people, to embark upon similar cruelties. Whether or not the media will actively report such cases is a different question.

Tags: census worker, murder

FDIC Looking to Borrow Money From Banks to Save Banks

September 23, 2009 · Posted in Government · Comment

As was long expected, the FDIC’s insurance fund is sooner or later going to be out of funds…

Geithner will ask Congress for more. Either the Treasury will do it directly, or the underfunded FDIC will collapse under the obligations of Geithner’s Public Private Investment Program and ask Congress for more funding.

Now the FDIC is considering all alternatives to avoid such a public relations disaster, even borrowing from banks, the institutions it insures:

Tired of the government bailing out banks? Get ready for this: officials may soon ask banks to bail out the government.

Senior regulators say they are seriously considering a plan to have the nation’s healthy banks lend billions of dollars to rescue the insurance fund that protects bank depositors. That would enable the fund, which is rapidly running out of money because of a wave of bank failures, to continue to rescue the sickest banks.

The plan, strongly supported by bankers and their lobbyists, would be a major reversal of fortune.

A hallmark of the financial crisis has been the decision by successive administrations over the last year to lend hundreds of billions of taxpayer dollars to large and small banks.

“It’s a nice irony,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics, a consulting company. “Like so much of this crisis, this is an issue that involves the least worst options.”

Bankers and their lobbyists like the idea because it is more attractive than the alternatives: yet another across-the-board emergency assessment on them, or tapping an existing $100 billion credit line to the Treasury.

The Federal Deposit Insurance Corporation, which oversees the fund, is said to be reluctant to use its authority to borrow from the Treasury.

Under the law, the F.D.I.C. would not need permission from the Treasury to tap into a credit line of up to $100 billion. But such a step is said to be unpalatable to Sheila C. Bair, the agency chairwoman whose relations with the Treasury secretary, Timothy F. Geithner, have been strained.

“Sheila Bair would take bamboo shoots under her nails before going to Tim Geithner and the Treasury for help,” said Camden R. Fine, president of the Independent Community Bankers. “She’d do just about anything before going there.”

Bankers worry that a special assessment of $5 billion to $10 billion over the next six months would crimp their profits and could push a handful of banks into deeper financial trouble or even receivership. And any new borrowing from the Treasury would be construed as a taxpayer bailout that could open the industry to a political reaction, resulting in a wave of restrictions like fresh limits on executive pay.

Any populist furor could be avoided, the thinking goes, if the government borrows instead from the banks.

“Borrowing from healthy banks, instead of the Treasury, has the advantage of keeping this in the family,” said Karen M. Thomas, executive vice president of government relations at the Independent Community Bankers of America, a trade group representing about 5,000 banks. “It is much better for perceptions than having the fund borrow from somewhere else.”

Ultimately, officials say, the deposit insurance corporation could settle on a plan that replenishes the insurance fund by doing some of both: borrowing from healthy banks to shore up the shorter-term liquidity needs of the fund, and imposing a special fee on banks to increase the longer-term capital level of the fund.

Since January the F.D.I.C. has seized 94 failing banks, causing a rapid decline in the deposit insurance fund. Despite a special assessment imposed on banks a few months ago to keep the fund afloat, its cash balance now stands at about $10 billion, a third of its size at the start of the year. (Another $32 billion has been set aside for failures that officials expect to occur in the coming months.)

The fund, which stands behind $4.8 trillion in insured deposits, could be wiped out by the failure of a single large bank, although the deposit insurance corporation could always seek a taxpayer bailout by borrowing from the Treasury to stay afloat.

Officials say that the F.D.I.C. will issue a proposed plan next week to begin to restore the financial health of the ailing fund.

There is no consensus among the five board members, consisting of Ms. Bair, two other F.D.I.C. officials, and the heads of the Office of Thrift Supervision and the Office of the Comptroller of the Currency. Others may propose novel ways to replenish the fund, for example, by asking the banks to prepay the premiums that they were planning to make next year.

Borrowing from the industry is allowed under an obscure provision of a 1991 law adopted during the savings and loan crisis. The lending banks would receive bonds from the government at an interest rate that would be set by the Treasury secretary and ultimately would be paid by the rest of the industry. The bonds would be listed as an asset on the books of the banks.

On a related note, please consider Federal Housing Administration & FDIC – The Next Bailouts to Come?

Tags: fdic

The Great Depression 2.0

September 22, 2009 · Posted in General Economics · 1 Comment

As I already pointed out many times, there are a lot of parallels between the current depression and the one from 1929.

Some interesting charts Hussman posted on his blog today compare the current bear market rally with the biggest one from the Great Depression:

Here is a chart of the S&P 500 in weekly data. Note that the market easily and repeatedly breached the lower green bands during the decline, so we should not assume that these bands provide reliable guidance for buying or selling. The recent advance has moved the market the full distance from lower to upper bands, however, which typically does not go uncorrected.

The following chart may look the same as the above chart. But it is from April 1930.

The market recovered by an almost identical percentage following the 1929 crash, peaking in April 1930, after which it suffered a subsequent decline to fresh lows. The point here is not that the same outcome will necessarily follow in this instance, but that we would be remiss not to consider the fact that investors were equally cheerful in early 1930, when the front page of the Wall Street Journal featured an article entitled “A Turn of the Tide Near” assuring investors: “It cannot be imagined that the wholesale failures and interest defaults characteristic of earlier depressions will now be repeated. Confidence in our banking system wholly precludes the money panics of former eras.”

Hussman observes the parallels in the index movement from lower to upper bands, and suggests that the current market might be headed in the same direction. I would recommend to at least seriously consider this possibility in all your decisions.

The key thing to keep in mind in all of this: The recent rally, green shoots, and recovery hopes have been created and/or fueled by massive government expenses, and by a believe in the omnipotence of our leaders in Washington.

But government spending sprees, too, will have to come to an end sooner or later. On top of that, all that the recent government programs have accomplished is to get marginal individuals back to the same flawed habits, such as owning unaffordable homes, buying too many cars, etc.

The interest that the government has to pay on its debts when it runs up sky high deficits, and the taxes it will have to raise in order to make those payments, will be hanging over the recovery like a Damocles Sword. The Federal Reserve, too, will be faced with a similar situation. Let’s assume, for the sake of the argument, that lending activity on homes, cars, etc. were to pick up again. What will the Fed do then? Cut interest rates? Add more bank reserves? Surely not, quite the opposite.

Once existing stimulus programs and credit expansion attempts subside, there won’t be much left to pick up the slack. The consumer won’t be able to go back to business as usual unless he goes through a long period of reduced consumption, deleveraging, and savings, a period during which the majority of production and spending inside the US will have to be focused on capital goods, so as to restore a balanced ratio between the production of consumer goods and the production of capital goods.

At the point when these government stimuli wind down, Keynesian clowns will be jumping out of the bushes left and right, and demand that the government take on more debt and spend more money. But at some point their mindless tirades will no longer appeal to an overtaxed and overleveraged populace. Their ivory tower nonsense will be way too far detached from simple realities.

Any temporary recovery we witness now, is likely to be remembered as just that, a temporary phenomenon. All actions taken so far have set the perfect stage for a double dip recession of enormous proportions, the worst possible prolongation of the necessary correction.

If it was our dear government’s objective to repeat the playbook from the Great Depression one by one, then they have indeed succeeded phenomenally.

Tags: bear market rally, great depression

A Foreign Policy of Peace and Freedom

September 19, 2009 · Posted in Foreign Policy · Comment

The US has, in the 20th century, slipped into a state of perpetual war with no end in sight. Constant meddling, occupations, bombings, troop deployments, nation building have become but a mere sideshow which public opinion appears to shrug at.

Hardest hit are the poor and the middle class. Their tax money has been spent on bombings and killings across the globe. Their future earnings have been borrowed against to pay for yet more bombings and killing. Their kids have been sent off to unknown lands, many have died, even more have returned with devastating injuries. Many of them have imported the habits of drug use and abuse and have ended up homeless. No less than a quarter of all homeless people are war veterans.

Economically, there is nothing more disruptive to the general welfare than a state of perpetual war. Not only does it stifle progress. It destroys productive assets and most importantly human lives.

President Obama has stepped up the Bush administration’s horrendous drive for more resources for more wars, just as George Bush had stepped up the global depredations perpetrated by President Clinton. It is an ongoing, consistent development. The public is conditioned to it in a slow process, kind of like the notorious frog is slowly boiled in water of increasing temperature.

But for Ron Paul, very few people in politics have consistently argued for an unconditional withdrawal of all US troops from all foreign countries. Whoever argues for it is met with nothing but rolling eyes, cynicism, shouting, and ridicule. Hired “experts” stand ready to make up a whole slew of arguments as to why “it just dosn’t work that way”. (Ironically it is those experts who have been wrong on every single foreign policy prediction they made. Meanwhile, our movement has been predicting virtually every major backlash and blowback that would inevitably ensue from the US’s foreign meddling.) But all this is expectable. It is the way latter day profits and civil leaders were always met in public until their dreams became reality and people realized the truth behind their ideas.

A change in foreign policy is long overdue.

Thus Murray Rothbard is always a good read. His consistent application of his beliefs in peace and freedom is unparalleled. The governments of the world would be well advised to follow his recommendations on foreign policy, in particular the United States. Below I posted the chapter “On Relations Between States” where he lays the foundation for libertarian foreign policy:

EACH STATE HAS AN assumed monopoly of force over a given territorial area, the areas varying in size in accordance with different historical conditions. Foreign policy, or foreign relations, may be defined as the relationship between any particular State, A, and other States, B, C, D, and the inhabitants living under those States. In the ideal moral world, no States would exist, and hence, of course, no foreign policy could exist. Given the existence of States, however, are there, any moral principles that libertarianism can direct as criteria for foreign policy? The answer is broadly the same as in the libertarian moral criteria directed toward the “domestic policy” of States, namely to reduce the degree of coercion exercised by States over individual persons as much as possible.

Before considering inter-State actions, let us return for a moment to the pure libertarian stateless world where individuals and their hired private protection agencies strictly confine their use of violence to the defense of person and property against violence. Suppose that, in this world, Jones finds that he or his property is being aggressed against by Smith. It is legitimate, as we have seen, for Jones to repel this invasion by the use of defensive violence. But, now we must ask: is it within the right of Jones to commit aggressive violence against innocent third parties in the course of his legitimate defense against Smith? Clearly the answer must be “No.” For the rule prohibiting violence against the persons or property of innocent men is absolute; it holds regardless of the subjective motives for the aggression. It is wrong, and criminal, to violate the property or person of another, even if one is a Robin Hood, or is starving, or is defending oneself against a third man’s attack. We may understand and sympathize with the motives in many of these cases and extreme situations. We (or, rather, the victim or his heirs) may later mitigate the guilt if the criminal comes to trial for punishment, but we cannot evade the judgment that this aggression is still a criminal act, and one which the victim has every right to repel, by violence if necessary. In short, A aggresses against B because C is threatening, or aggressing against, A. We may understand C’s “higher” culpability in this whole procedure, but we still label this aggression by A as a criminal act which B has every right to repel by violence.

To be more concrete, if Jones finds that his property is being stolen by Smith, Jones has the right to repel him and try to catch him, but Jones has no right to repel him by bombing a building and murdering innocent people or to catch him by spraying machine gun fire into an innocent crowd. If he does this, he is as much (or more) a criminal aggressor as Smith is.

The same criteria hold if Smith and Jones each have men on his side, i.e., if “war” breaks out between Smith and his henchmen and Jones and his bodyguards. If Smith and a group of henchmen aggress against Jones, and Jones and his bodyguards pursue the Smith gang to their lair, we may cheer Jones on in his endeavor; and we, and others in society interested in repelling aggression, may contribute financially or personally to Jones’s cause. But Jones and his men have no right, any more than does Smith, to aggress against anyone else in the course of their “just war”: to steal others’ property in order to finance their pursuit, to conscript others into their posse by use of violence, or to kill others in the course of their struggle to capture the Smith forces. If Jones and his men should do any of these things, they become criminals as fully as Smith, and they too become subject to whatever sanctions are meted out against criminality. In fact if Smith’s crime was theft, and Jones should use conscription to catch him, or should kill innocent people in the pursuit, then Jones becomes more of a criminal than Smith, for such crimes against another person as enslavement and murder are surely far worse than theft.

Suppose that Jones, in the course of his “just war” against the ravages of Smith, should kill some innocent people; and suppose that he should declaim, in defense of this murder, that he was simply acting on the slogan, “give me liberty or give me death.” The absurdity of this “defense” should be evident at once, for the issue is not whether Jones was willing to risk death personally in his defensive struggle against Smith; the issue is whether he was willing to kill other innocent people in pursuit of his legitimate end. For Jones was in truth acting on the completely indefensible slogan: “Give me liberty or give them death”—surely a far less noble battle cry.

War, then, even a just defensive war, is only proper when the exercise of violence is rigorously limited to the individual criminals themselves. We may judge for ourselves how many wars or conflicts in history have met this criterion.

It has often been maintained, and especially by conservatives, that the development of the horrendous modern weapons of mass murder (nuclear weapons, rockets, germ warfare, etc.) is only a difference of degree rather than kind from the simpler weapons of an earlier era. Of course, one answer to this is that when the degree is the number of human lives, the difference is a very big one. But a particularly libertarian reply is that while the bow and arrow, and even the rifle, can be pinpointed, if the will be there, against actual criminals, modern nuclear weapons cannot. Here is a crucial difference in kind. Of course, the bow and arrow could be used for aggressive purposes, but it could also be pinpointed to use only against aggressors. Nuclear weapons, even “conventional” aerial bombs, cannot be. These weapons are ipso facto engines of indiscriminate mass destruction. (The only exception would be the extremely rare case where a mass of people who were all criminals inhabited a vast geographical area.) We must, therefore, conclude that the use of nuclear or similar weapons, or the threat thereof, is a crime against humanity for which there can be no justification.

This is why the old cliche no longer holds that it is not the arms but the will to use them that is significant in judging matters of war and peace. For it is precisely the characteristic of modern weapons that they cannot be used selectively, cannot be used in a libertarian manner. Therefore, their very existence must be condemned, and nuclear disarmament becomes a good to be pursued for its own sake. Indeed, of all the aspects of liberty, such disarmament becomes the highest political good that can be pursued in the modern world. For just as murder is a more heinous crime against another man than larceny so mass murder—indeed murder so widespread as to threaten human civilization and human survival itself—is the worst crime that any man could possibly commit. And that crime is now all too possible. Or are libertarians going to wax properly indignant about price controls or the income tax, and yet shrug their shoulders at or even positively advocate the ultimate crime of mass murder?

If nuclear warfare is totally illegitimate even for individuals defending themselves against criminal assault, how much more so is nuclear or even “conventional” warfare between States!

Let us now bring the State into our discussion. Since each State arrogates to itself a monopoly of violence over a territorial area, so long as its depredations and extortions go unresisted, there is said to be “peace” within the area, since the only violence is continuing and one-way, directed by the State downward against its people. Open conflict within the area only breaks out in the case of “revolutions,” in which people resist the use of State power against them. Both the quiet case of the State unresisted and the case of open revolution may be termed “vertical violence”: violence of the State against its public or vice versa.

In the existing world, each land area is ruled over by a State organization, with a number of States scattered over the earth, each with a monopoly of violence over its own territory. No super-state exists with a monopoly of violence over the entire world; and so a state of “anarchy” exists between the several States.2 And so, except for revolutions, which occur only sporadically, the open violence and two-sided conflict in the world takes place between two or more States, i.e., what is called “international war” or “horizontal violence.”

Now there are crucial and vital differences between inter-State warfare on the one hand and revolutions against the State or conflicts between private individuals on the other. In a revolution the conflict takes place within the same geographical area: both the minions of the State and the revolutionaries inhabit the same territory Inter-State warfare, on the other hand, takes place between two groups, each having a monopoly over its own geographical area, i.e., it takes place between inhabitants of different territories. From this difference flow several important consequences:

(1)In inter-State war, the scope for the use of modern weapons of mass destruction is far greater. For if the escalation of weaponry in an intra-territorial conflict becomes too great, each side will blow itself up with the weapons directed against the other. Neither a revolutionary group nor a State combatting revolution, for example, can use nuclear weapons against the other. But, on the other hand, when the warring parties inhabit different territorial areas, the scope for modern weaponry becomes enormous, and the entire arsenal of mass devastation can come into play.

A second corollary consequence (2) is that while it is possible for revolutionaries to pinpoint their targets and confine them to their State enemies, and thus avoid aggressing against innocent people, pinpointing is far less possible in an inter-State war. This is true even with older weapons; and, of course, with modern weapons there can be no pinpointing whatever.

Furthermore, (3) since each State can mobilize all the people and resources in its territory, the other State comes to regard all the citizens of the opposing country as at least temporarily its enemies and to treat them accordingly by extending the war to them. Thus, all of the consequences of inter-territorial war make it almost inevitable that inter-State war will involve aggression by each side against the innocent civilians—the private individuals—of the other. This inevitability becomes absolute with modern weapons of mass destruction.

If one distinct attribute of inter-State war is inter-territoriality, another unique attribute stems from the fact that each State lives by taxation over its subjects. Any war against another State, therefore, involves the increase and extension of taxation-aggression against its own people. Conflicts between private individuals can be, and usually are, voluntarily waged and financed by the parties concerned. Revolutions can be, and often are, financed and fought by voluntary contributions of the public. But State wars can only be waged through aggression against the taxpayer.

All State wars, therefore, involve increased aggression against the State’s own taxpayers, and almost all State wars (all, in modern warfare) involve the maximum aggression (murder) against the innocent civilians ruled by the enemy State. On the other hand, revolutions are often financed voluntarily and may pinpoint their violence to the State rulers; and private conflicts may confine their violence to the actual criminals. We must therefore conclude that, while some revolutions and some private conflicts may be legitimate, State wars are always to be condemned.

Some libertarians might object as follows: “While we too deplore the use of taxation for warfare, and the State’s monopoly of defense service, we have to recognize that these conditions exist, and while they do, we must support the State in just wars of defense.” In the light of our discussion above, the reply would go as follows: “Yes, States exist, and as long as they do, the libertarian attitude toward the State should be to say to it, in effect: ‘All right, you exist, but so long as you do, at least confine your activities to the area which you monopolize.’” In short, the libertarian is interested in reducing as much as possible the area of State aggression against all private individuals, “foreign” and “domestic.” The only way to do this, in international affairs, is for the people of each country to pressure their own State to confine its activities to the area which it monopolizes, and not to aggress against other State-monopolists—particularly the people ruled by other States. In short, the objective of the libertarian is to confine any existing State to as small a degree of invasion of person and property as possible. And this means the total avoidance of war. The people under each State should pressure “their” respective States not to attack one another, and, if a conflict should break out, to negotiate a peace or declare a cease-fire as quickly as physically possible.

Suppose further that we have that rarity—an unusually clear-cut case in which the State is actually trying to defend the property of one of its citizens. A citizen of country A travels or invests in country B, and then State B aggresses against his person or confiscates his property. Surely, our libertarian critic might argue, here is a clear-cut case where State A should threaten or commit war against State B in order to defend the property of “its” citizen. Since, the argument runs, the State has taken upon itself the monopoly of defense of its citizens, it then has the obligation to go to war on behalf of any citizen, and libertarians must support such a war as a just one.

But the point again is that each State has a monopoly of violence, and therefore of defense, only over its territorial area. It has no such monopoly—in fact it has no power at all-over any other geographical area. Therefore, if an inhabitant of country A should move to or invest in country B, the libertarian must argue that he thereby takes his chances with the State monopolist of country B, and that it would be immoral and criminal for State A to tax people in country A and to kill numerous innocents in country B in order to defend the property of the traveller or investor.

It should also be pointed out that there is no defense against nuclear weapons (the only current “defense” being the threat of “mutually assured destruction”) and, therefore, that the State cannot fulfill any sort of international defense function so long as these weapons exist.

The libertarian objective, then, should be, regardless of the specific causes of any conflict, to pressure States not to launch wars against other States and, should a war break out, to pressure them to sue for peace and negotiate a cease-fire and a peace treaty as quickly as physically possible. This objective, incidentally, was enshrined in the old-fashioned international law of the eighteenth and nineteenth centuries, i.e., the ideal that no State aggress against the territory of another—which is now called the “peaceful coexistence” of States.

Suppose, however, that despite libertarian opposition, war has begun and the warring States are not negotiating a peace. What, then, should be the libertarian position? Clearly, to reduce the scope of assault against innocent civilians as much as possible. Old-fashioned international law had two excellent devices for this purpose: the “laws of war,” and the “laws of neutrality” or “neutrals’ rights.” The laws of neutrality were designed to keep any war that breaks out strictly confined to the warring States themselves, without aggression against the States, or particularly the peoples, of the other nations. Hence, the importance of such ancient and now forgotten American principles as “freedom of the seas” or severe limitations upon the rights of warring States to repress neutral trade with the enemy country. In short, the libertarian position is to induce the warring States to observe fully the rights of neutral citizens.

For their part, the “laws of war” were designed to limit as much as possible the invasion by warring States of the rights of the civilians of the respective warring countries. As the British jurist F.J.P. Veale put it:

The fundamental principle of this code was that hostilities between civilized peoples must be limited to the armed forces actually engaged. . . . It drew a distinction between combatants and noncombatants by laying down that the sole business of the combatants is to fight each other and, consequently that noncombatants must be excluded from the scope of military operations.

In condemning all wars, regardless of motive, the libertarian knows that there may well be varying degrees of guilt among States for any specific war. But his overriding consideration is the condemnation of any State participation in war. Hence, his policy is that of exerting pressure on all States not to start or engage in a war, to stop one that has begun, and to reduce the scope of any persisting war in injuring civilians of either side or no side.

One corollary of the libertarian policy of peaceful coexistence and nonintervention between States is the rigorous abstention from any foreign aid, aid from one State to another. For any aid given by State A to State B (1) increases the tax aggression against the people of country A, and (2) aggravates the suppression by State B of its own people.

Let us see how libertarian theory applies to the problem of imperialism, which may be defined as the aggression of State A over the people of country B, and the subsequent maintenance of this foreign rule. This rule could either be directly over country B, or indirectly through a subsidiary client State B. Revolution by the people of B against the imperial rule of A (either directly or against client State B) is certainly legitimate, provided again that the revolutionary fire be directed only against the rulers. It has often been maintained by conservatives—and even by some libertarians—that Western imperialism over undeveloped countries should be supported as more watchful of property rights than any successor native government might be. But first, judging what might follow the status quo is purely speculative, whereas the oppression of existing imperial rule over the people of country B is all too real and culpable. And secondly, this analysis neglects the injuries of imperialism suffered by the Western taxpayer, who is mulcted and burdened to pay for the wars of conquest and then for the maintenance of the imperial bureaucracy. On this latter ground alone, the libertarian must condemn imperialism.

Does opposition to all inter-State war mean that the Libertarian can never countenance change of geographical boundaries—that he is consigning the world to a freezing of unjust territorial regimes? Certainly not. Suppose, for example, that the hypothetical State of “Walldavia” has attacked “Ruritania” and annexed the western part of the country. The Western Ruritanians now long to be reunited with their Ruritanian brethren (perhaps because they wish to use their Ruritanian language undisturbed). How is this to be achieved? There is, of course, the route of peaceful negotiations between the two powers; but suppose that the Walldavian imperialists prove adamant. Or, libertarian Walldavians can put pressure on their State to abandon its conquest in the name of justice. But suppose that this, too, does not work. What then? We must still maintain the illegitimacy of the Ruritanian State’s mounting a war against Walldavia. The legitimate routes to geographical change are (1) revolutionary uprisings by the oppressed Western Ruritanian people, and (2) aid by private Ruritanian groups (or, for that matter, by friends of the Ruritanian cause in other countries) to the Western rebels—either in the form of equipment or volunteer personnel.

Finally, we must allude to the domestic tyranny that is the inevitable accompaniment of inter-State war, a tyranny that usually lingers long after the war is over. Randolph Bourne realized that “war is the health of the State.”6 It is in war that the State really comes into its own: swelling in power, in number, in pride, in absolute dominion over the economy and the society. The root myth that enables the State to wax fat off war is the canard that war is a defense by the State of its subjects. The facts are precisely the reverse. For if war is the health of the State, it is also its greatest danger. A State can only “die” by defeat in war or by revolution. In war, therefore, the State frantically mobilizes the people to fight for it against another State, under the pretext that it is fighting for them. Society becomes militarized and statized, it becomes a herd, seeking to kill its alleged enemies, rooting out and suppressing all dissent from the official war effort, happily betraying truth for the supposed public interest. Society becomes an armed camp, with the values and the morale—as Albert Jay Nock once phrased it—of an “army on the march.”

Tags: Foreign Policy, war

Federal Housing Administration & FDIC – The Next Bailouts to Come?

September 18, 2009 · Posted in Government · 1 Comment

In August referenced and wrote the following about the Federal Housing Administration (FHA) in US Government Happily Continues Subprime Lending:

The FHA’s standard insurance program today is notoriously lax. It backs low downpayment loans, to buyers who often have below-average to poor credit ratings, and with almost no oversight to protect against fraud. Sound familiar? This is called subprime lending—the same financial roulette that busted Fannie, Freddie and large mortgage houses like Countrywide Financial.

On June 18, HUD’s Inspector General issued a scathing report on the FHA’s lax insurance practices. It found that the FHA’s default rate has grown to 7%, which is about double the level considered safe and sound for lenders, and that 13% of these loans are delinquent by more than 30 days. The FHA’s reserve fund was found to have fallen in half, to 3% from 6.4% in 2007—meaning it now has a 33 to 1 leverage ratio, which is into Bear Stearns territory.

(…)

Where this will lead is predictable: Taxpayers will be on the hook to cover more losses than our dear bureaucrats are currently capable of expecting.

Today the Washington Post reports Housing Agency’s Cash Reserves Will Drop Below Requirement:

The Federal Housing Administration has been hit so hard by the mortgage crisis that for the first time, the agency’s cash reserves will drop below the minimum level set by Congress, FHA officials said.

(…)

‘Not Going to Congress’

Earlier this year, HUD Inspector General Kenneth Donohue told a Senate panel that falling below the reserve’s minimum threshold would require an “increase in premiums or congressional appropriation intervention to make up the shortfall.”

But Stevens, who became FHA commissioner in July, said these options are not on the table. “We are absolutely not going to Congress and asking for money for FHA,” he said. “We’re not going to need a special subsidy or special funding of any kind.”

He stressed that the agency plans to take other steps that will help beef up the reserves. Some of these measures address fraudulent loans that can contribute to FHA’s losses.

For one, he will propose that banks and other lenders that do business with the FHA have at least $1 million in capital they can use to repay the agency for losses if they were involved in fraud. Now, they are required only to hold $250,000. Second, he will propose that lenders also take responsibility for any losses due to fraud committed by the mortgage brokers with whom they work.

You’re So Going to Congress!

OK, let’s back up for a second: I have my doubts that relieving the FHA from the responsibility to cover fraudulent loans even remotely fixes their problems. The problem is not one of fraudulent loans. The problem is that loans were made to lots and lots of people who simply can’t pay them back. This is what started the sub-prime mess in 2006. Note that “the FHA’s default rate has grown to 7%, which is about double the level considered safe and sound for lenders, and that 13% of these loans are delinquent by more than 30 days”.

Folks, this is subprime lending at its best. They will find out at some point in the future that none of the solutions proposed above will help. And then they will need money or close shop. And if they need money they will need to go to Congress. If they don’t deem it politically palatable to go to Congress directly, then what?

Here is an idea that Sheila Bair with the FDIC is now toying with. Please note that the FDIC is essentially for bank deposits what the FHA is for mortgages:

The FDIC has several options to consider as it looks to replenish the insurance fund after nearly 100 bank failures this year. There has been a general shift of mindset that the FDIC should consider taking government funds, Bair said at a question-and-answer session following the speech Friday.

“We are considering all options, including borrowing from Treasury,” Bair said, adding the board will meet before the end of the month and should soon issue some requests for comment on the subject.

Senator Carl Levin (D-Mich.) this week urged FDIC to take advantage of borrowing authority included a provision in the Helping Families Save Their Homes Act. He noted the Act authorizes the FDIC to borrow up to $100bn from the Treasury if additional funds are needed to replenish the insurance fund. He urged the FDIC to choose borrowing from the Treasury over increasing fees charged to all banking firms.

But the FDIC has these $100 billion essentially pre approved. I don’t see any such option for the FHA. At some point they will either hike up premiums for performing banks, or ask for money from Congress, or do a combination of both … of they could also do the right thing for a change and close down their miserable operation.

Tags: fdic, fha, subprime

Household Credit Market Debt Declined by $59 Billion in Q2 (St. Louis Fed)

September 18, 2009 · Posted in General Economics · Comment

The latest data from the St. Louis Fed shows that total household credit market debt outstanding has declined from $13,756 billion in Q1 09 to $13,697 billion in Q2, a decline of $59 billion.

Tags: household credit market debt, q2 2009